The New Poor

In Hard Times, Lured Into Trade School and Debt

Published: March 13, 2010

The Career Education Corporation, a publicly traded global giant, last year reported revenue of $1.84 billion. Roughly 80 percent came from federal loans and grants, according to BMO Capital Markets, a research and trading firm. That was up from 63 percent in 2007.

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The Apollo Group — which owns the for-profit University of Phoenix — derived 86 percent of its revenue from federal student aid last fiscal year, according to BMO. Two years earlier, it was 69 percent.

For-profit schools have proved adept at capturing Pell grants, which are a centerpiece of the Obama administration’s efforts to make higher education more affordable. The administration increased financing for Pell grants by $17 billion for 2009 and 2010 as part of its $787 billion stimulus package.

Two years ago, students at for-profit trade schools received $3.2 billion in Pell grants, according to the Department of Education, less than went to students at two-year public institutions. By the 2011-12 school year, the administration now estimates, students at for-profit schools should receive more than $10 billion in Pell grants, more than their public counterparts. (Those anticipated increases may shrink, depending on the outcome of wrangling in Congress over health care and student lending.)

Enrollment at for-profit trade schools expanded about 20 percent a year the last two years, more than double the pace from 2001-7, according to the Career College Association.

Mr. Miller, the association’s president, said for-profit schools were securing large numbers of Pell grants because their financial aid offices were diligent and because the schools served many low-income students.

Jeffrey West was working at a pet store near Philadelphia, earning about $8 an hour, when he saw advertisements for training programs offered by WyoTech, a chain of trade schools owned by Corinthian Colleges Inc., a publicly traded company that last year reported revenue of $1.3 billion.

After Mr. West called the school, an admissions representative drove to his house to sell him on classes in auto body refinishing and upholstering technology, a nine-month program that cost about $30,000.

Mr. West blanched at the tuition, he recalled, but the representative assured him the program amounted to an antidote to hard economic times.

“They said they had a very high placement rate, somewhere around 90 percent,” he said. “That was one of the key factors that caused me to go there. They said I would be earning $50,000 to $70,000 a year.”

Some 14 months after he completed the program, Mr. West, 21, has failed to find an automotive job. He is working for $12 an hour weatherizing foreclosed houses.

With loan payments reaching $600 a month, he is working six and seven days a week to keep up.

“I’ve got $30,000 in student loans, and I really don’t have much to show for it,” he said. “It’s really frustrating when you’re trying to better yourself and you wind up back at Square One.”

Corinthian says it bars its recruiters from making promises about pay.

“The majority of our students graduate,” said a spokeswoman, Anna Marie Dunlap, in a written statement. “Most see a significant earnings increase.”

The increase in market opportunities for the for-profit education industry comes as governments spend less on education. In states like California, community colleges have been forced to cut classes just when demand is greatest.

“This is creating a very ripe environment for the for-profit schools to pick off more students,” said Lauren Asher, president of the Institute for College Access & Success, a nonprofit research group based in California that seeks to make higher education more affordable. “The risks of exploitation are higher, and the potential rewards of those practices are higher.”

For-profit culinary schools have long drawn criticism for leading students to rack up large debts. Now, they are enjoying striking growth. Enrollment at the 17 culinary schools of the Career Education Corporation — most of them operated under the name Le Cordon Bleu — swelled by 31 percent in the final months of last year from a year earlier.

When Andrew Newburg called the Le Cordon Bleu College of Culinary Arts in Portland, Ore., to seek information, he was feeling pressure to start a new career. It was 2008, and his Florida mortgage business was a casualty of the housing bust. An associate degree in culinary arts from a school in the food-obsessed Pacific Northwest seemed like a portal to a new career.

The tuition was daunting — $41,000 for a 15-month or 21-month program — but he said the admissions recruiter portrayed it as the entrance price to a stable life.

“The recruiter said, ‘The way the economy is, with the recession, you need to have a safe way to be sure you will always have income,’ ” Mr. Newburg said. “ ‘In today’s market, chefs will always have a job, because people will always have to eat.’ ”

According to Mr. Newburg, the recruiter promised the school would help him find a good job, most likely as a line cook, paying as much as $38,000 a year.